James ThierExecutive DirectorAustralian Ethical InvestmentTBLI Conference, London11-12 November 2010

DisclaimerPlease be aware that this presentation provides general information only, and is specifically for the purposes of professional review of the investment capabilities of Australian Ethical Investments Limited. It is not intended for general distribution or use by advisers and personal investors. You should refer to a copy of the Product Disclosure Statement and our website before considering investing.

Units in the Trusts are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, Australian Financial Services Licence No. 229949). Interests in the Australian Ethical Retail Superannuation Fund are offered by Australian Ethical Investment Ltd by arrangement with its subsidiary and Trustee of the Fund, Australian Ethical Superannuation Pty Ltd (ABN 43 079 259 733, Registerable Superannuation Entity Licence No. L0001441). The registration number of the Australian Ethical Retail Superannuation Fund is R1004731.

Overview of Australian Ethical

• Listed ASX independent funds manager • Sustainable/thematic/ESG boutique specialist • Established over 20 years, with an aim to pool

investor savings to create a more fair and sustainable society

• 6 public trusts and similar pension/superannuation fund

• A$640M FUM (October 2010)• Over 20,000 investors• More than 140 diverse environmental and socially

responsible investments• Unique ‘deep green’ manager recognised

domestically and internationally for its rigorous and stringent approach

1

A rising tide lifts all ships

Passive index, all-inclusive

A breakthrough way to influence corporate behaviour via ESG

A constructive new way to engage with companies on environmental and governance issues

Addresses the issue from the point of view of inclusion – ‘a rising tide lifts all ships’

Shareholder Advocacy

Advocacy by asset owners

'Climate change is the biggest issue facing this generation. Some would say it’s the most important issue to face all generations.

The scope and potential of climate change – environmental, humanitarian, health, political - makes it an overarching issue to rival the consequences of war in magnitude.'

James Thier, Climate Change Summit, Sydney, 2007.

Why Climate?

Climate Advocacy Fund

What? A fund whose mission is to match or slightly better index returns and pursue improved ESG performance

Why? To benefit investors, society and the environment

How? •Passive portfolio construction using “economic footprint” weighting

•Explicit legal obligation on RE to pursue “ESG charter” aims

Who? Retail and institutional investors who want an index like return and want to have their voice heard/pursue the UNPRI principles.

How is the new fund distinct from existing screened funds?

• It potentially owns all of the companies in the ASX 200

• It does no active stock selection to enhance return

• It may use its shareholdings to engage with any listed company

• It is structured so as to “unscramble the voting power”

Screened funds

say 1,000 investors

Climate Advocacy Fund

say 1,000 investors

Fund

Fund

AEI RE of FundStill one RE - AEI

100 Nominees for AEI

Company

Power to putresolutions lost

Company

Power to put resolutions regained

• describe their carbon emissions footprint Aquila Resources Ltd and Paladin Energy Ltd

• have a plan to reduce their overall emissions to a publicly stated, targeted level (or at least to target a reduced level of emissions intensity) Oil Search Ltd

• ensure investment decisions and balance sheet valuations are based on publicly stated, reasonable assumptions about future carbon emission pricing and regulation Woodside Petroleum Ltd

Resolutions

Two further enhancements are used:

•Weights are reduced in firms that have low debt coverage ratios.

•They are also reduced for firms that have a cumulative pattern of earnings in excess of cashflow from operations.

These enhancements are measured as at the most recent annual report.

•Sales •Cash flow•Gross dividends paid

•Book value (Each weighted 25%)

“Economic Footprint”

is calculated using 4 fundamental measures of firm size averaged

over the past 5 years

Source: Research Affiliates, LLC. The simulated enhanced RAFI time series are meant to illustrate the risk and return characteristics of the current set of RA quantitative enhancements applied to the RAFI strategy over the entire simulated sample period.  As we research new enhancements and refine existing enhancements, the simulated time series could look different over time. These time series are not to be interpreted literally as results from a live historical portfolio.  The simulated time series can only be used to give you a representative illustration of the likely strategy behavior gross of fees, implementation slippage and transactions costs. Hypothetical or simulated performance results have certain inherent limitations. Unlike actual performance records, simulated results do not represent actual trading.

Realindex Australia Value Added 1984–2010 simulated data

Realindex Investments

-15%

-10%

-5%

0%

5%

10%

15%

1965 1971 1977 1983 1989 1995 2001 2007

RA

FI U

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&P

50

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Nifty 50 Biotech Technology

Global Financial

Crisis

Realindex Underperforms in Irrational Bubbles1962 – June 2009 simulated data

RAFI US Large vs. S&P 500: Annualized Rolling 3 Year Return

Source: Research Affiliates, LLC., based on data from Bloomberg, CRSP and Compustat. THE INDEX DATA PUBLISHED HEREIN IS SIMULATED, UNMANAGED AND CANNOT BE INVESTED IN DIRECTLY. PAST SIMULATED PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE AND IS NOT INDICATIVE OF ANY SPECIFIC INVESTMENT. ACTUAL INVESTMENT RESULTS MAY DIFFER. The simulated data contained herein is based on the patent-pending non-capitalization weighted indexing system, method, and computer program product first published in an article written by Robert D. Arnott, Jason Hsu, and Philip Moore (2005), “Fundamental Indexation,” Financial Analysts Journal (March/April): 83–99.

Simulated RAFI Outperforms S&P 500S&P 500 Outperforms RAFI

Realindex Investments

CAF and the PRI1. We will incorporate ESG issues into investment analysis

and decision making processes. (passive)

2. We will be active owners and incorporate ESG issues into our ownership policies and practices.

3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.

4. We will promote acceptance and implementation of the principles within the investment industry.

5. We will work together to enhance our effectiveness in implementing the principles.

6. We will each report on our activities and progress towards implementing the principles.

ConclusionIndividual• Likely better returns than the sharemarket index, same

risk• Voice for improved corporate performance on ESG issues –

specifically climate change

Foundation/NGO/Charity etc• Likely better return, similar risk• Chance to participate in investment actions which

resonate with organisational aims

Super Fund/Institutional (take $ from index fund)• Likely better return, similar risk• Tangible UNPRI response

FUND NAME

CLIMATE ADVOCACY FUND

Fund Objectives: To enable investors to simultaneously: earn a return in excess of that paid by the ASX 200participate in active ownership policies pursuing improved corporate performance on ESG issues.

Investment Style: Portfolio management will be passive. “Economic footprint” weightings of companies listed on the ASX will be used to construct the portfolio.

Legal Nature of Investment:

The Trust is structured as a public unit trust.

Recommended Timeframe:

Minimum 7 years

Volatility of Returns: Less than that exhibited by the ASX 200

Potential Return: In excess of that paid by the ASX 200 over the long term.

Min Initial Investment: $5,000 - Discounted fees available for investments in excess of $50,000.

Reporting to Unitholders:

Financial - Half Yearly Statements, Unit Pricing – Daily, Engagement - website updated quarterly.

Management Fee 1.1% pa - For amounts in excess of $50,000 – 0.85%pa.. Fees accrue daily.

Advisor Service Fee: Up to 1.0% p.a. payable quarterly

Performance Fee: Nil

Entry Fee: Nil

Exit Fee: Nil

Buy/Sell Spread: 0.2% each side (Not payable in regards reinvested distributions).

James Thier, Executive Director, Australian Ethical Investment

jthier@australianethical.com.au

Climate Advocacy Fundwww.climateadvocacyfund.com.au Australian Ethical Investmentwww.australianethical.com.au

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